Classical vs Keynes

Classical VS Keynes

The general theory by Maynard Keynes states that the level of employment is determined by the marginal efficiency of capital, marginal propensity to consume and the real interest rates, also the level of output and employment is determined by aggregate demand and that the aggregate demand can be increased through an increase in government expenditure.

Keynes therefore advocated for government intervention in steering the economy while the classical economist argued that the government should not interfere with the running of the economy, on unemployment according to Keynes theory this problem could be resolved by the use of government policies, the two theorists differ in the causes and the solutions of unemployment, to the classical economists unemployment is caused by excess supply which is caused by high wage rates, high wage rates means low demand and therefore this causes unemployment, therefore the Classical economist believe that the economy should be left to adjust itself until an equilibrium is reached at full employment. Says law was developed by Jean Say who was a French businessman, according to this theory there cannot be demand without supply, according to this law a recession which is characterized by high unemployment is not caused by low demand or lack of money, however an increase in money supply will result to inflation. The Say's law therefore clearly identifies the difference between the Keynes theory and classical economists in their explanation of the education.

Classical economist supports Say's law that supply causes demand and that there is never over supply, the Law states that people will supply things to the economy so that they can get money to buy other goods in the economy that are of the same value they have supplied. This is in line with the classical economists who argue that money does exist in an economy and that money will flow in the economy and this flow of money flows from the businesses to the...